CVS-Aetna deal boosts the drug store chain

Forbes: CVS Caremark, the drug retailer and pharmacy benefit management firm, announced a new agreement with Aetna to help constrain drug costs. "The deal encompasses approximately $9.5 billion in annual drug spending relating to approximately 9.7 million lives. CVS expects significant long-term financial benefits from this strategic relationship" (7/28).

The Street: The 12-year deal helped mask a weak performance in second quarter earnings for CVS. "CVS Caremark … missed second-quarter expectations, lowering its outlook. But a massive deal with health insurer Aetna… overshadowed any of these concerns." The Street explains: "During the [second]quarter, CVS earned $821 million, or 60 cents a share, a 7% decline for the drugstore from $886 million, or 60 cents." But, because of the deal, shares rose 3.1 percent yesterday to $31.54 (Poggi, 7/28).

Reuters: The deal "brightened an otherwise disappointing view for sales and earnings in 2010 due to a weak U.S. economy that is hurting both its drugstore operations and PBM business. [CVS Caremark chief executive Tom Ryan] noted that consumers hard-hit by joblessness and credit woes were making fewer visits to their doctor. CVS said it now expects 2010 same-store sales to rise by 2 to 3.5 percent, down from a previous view of a 3.5 to 5.5 percent rise" (Wahba, 7/28).